Short Lessons from the Developing World

This is the second last of my India posting. I was moved and troubled by the recent Mumbai bombings, much in part because I had spent time in that beautiful country. But time away from a country dulls the memory, and I have barely scratched the surface of the Indian consumer mind.

Here is a transcript from one of my field studies at D.light, a company that designs and manufactures LED Solar Lights, has impacted the lives of villagers.




Monika Singh, Indian Villager
“The D.light Nova is much brighter than the kerosene lamp. Because of the good quality light, we are more interested in studying. When we were using the kerosene lamp to study, the wind would blow out the light. Hence, it was necessary for us to study in the house. The kerosene lamp gave off a lot of smoke. We were uncomfortable with the kerosene lamp as we had to put it very close to our books. We often needed to tilt the lamp in order to read our books, and smoke would go into our mouths.

With the D.light Nova, we can now study outside in the compound. I begin studying at 7 or 8pm and study for 2.5 hours with the light. The time that we take to study has been reduced, because with good light, we can now study faster. I use the extra time to help my mother in housework or play. Because of the light, we can now go to bed early and wake up early. We now have some free time before going to school.”

By putting the customer at the centre of its business, D.light offers several basic principles in developing FMCG for the other 90% of the world’s population.

1.The product must tangibly improve lives. A silly example - instant tea does wonders for urbanites who have precious little time for anything. India has a strong tea (chai) drinking culture but if we offer affordable instant tea to villagers, the time saved has little bearing on their lives. However, if the tea leaves are formulated to give more flavour using less tea and for the same price - that’s real value for any tea drinker.

2. The product should protect health. People living in developing countries as well as those living beneath the poverty line - their environments often don’t help. Be it dust, pollution, poor sanitation, ventilation or filth. If daily use products can empower their users to have control over any of these elements, it would certainly be a more meaningful product. One of the challenges would be educating and communicating those benefits.

3. Replace inferior products at competitive cost. Good products aren’t good enough for the world’s 90%. In many ways, because people living in developing countries survive on so little, they are often the harsh test of a product’s value. Additionally, many items of use are entrenched in tradition and total mindset change is often needed.

The last India-related posting will be a photo diary of India’s quirky, beautiful, colourful culture.

FMCG & Bad Debt

The financial tsunami began with bad credit but is rippling on to all financial institutions in ways and through relationships that I am not qualified to explain. Common sense tells us that the loss of trust in financial institutions, leading directly to the exit of investors in all industries, with the falling indices matched by the falling demand for non-essential consumer goods… the financial depression will also lead to the consumer cutting back on FMCG purchases.

The first to go would be the regularly purchased premium goods, such as our good ol’ Starbucks coffee. Starbucks has reported a 97% plunge in their 4Q profits and will close 600 stores – presuming a conservative average of 10 employees per branch, that would be some 6,000 employees out in the streets. Branded goods will not see an immediate fall since we don’t purchase an MTM facial cleansing set every other day. Not only is the customer loyalty to branded goods stronger, but they tend to survive on a smaller affluent market who are not immediately affected by the downturn.

As the economic situation worsens and is felt more keenly in everyday life, consumers will begin to make brand switches on a massive scale. Top brands in FMCG are likely to suffer as consumers buy facial wash or shaver brands that would save them a few dollars and still perform satisfactorily. If we ever hit a significant depression, these decisions may extend on a wide scale to cheaper products, such as shampoo or coffee powder.

Japanese FMCGs have found an interesting brand strategy for their domestic-driven, over-saturated consumer market. Operating with leaner profit margins, there is a greater range of lower to middle range products that are extremely fast moving. Seasonal offerings form the spike in earnings while the brand is built through a combination of flagship and seasonal products. Through consistent branding, they are able to offer a range to satisfy the sampling appetite of the Japanese consumer while building an overall strong brand. There is more than a single lesson in this strategy which I will bring up later.

Back to the current situation: advertising had made credit sound so risk-free to the point that loans had become an FMCG in the sense of how it had utterly transformed the consumer’s purchasing process for large ticket items. Lucrative loan packages have provided record profits for banks, but have led consumers with poor financial habits to bankruptcy. Definitely not a happy marriage. Other companies offering consumer goods with the option of paying through interest-free monthly installments are faced with the same question: what is the moral responsibility of my company to my consumers?

I would propose that it is a question that FMCG companies would need to answer as well. While FMCGs are not directly responsible for bankruptcies, they do, in many cases, offer channels for bad habits, such as impulsive and overbuying, overeating and surprise, physical laziness. Even when products are not a direct medium for bad habits, the way that FMCGs are advertised and portrayed presupposes and moulds consumer habits. Even when the responsibility for bad habits may not be that of the FMCG company, the moulding of consumer perception and buying behaviour certainly is. Simply put, if we want a company to continue on to posterity, it would depend more on healthy happy people living long lives than unhappy people who use the product for only a couple of years before we need to find more unhappy people to target.

The question that needs to be asked is “What is the real value that I am providing to my consumers’ lives that is not measured in dollars and cents?” This is not counter-intuitive to an industry driven by profit. There will not be any profit to be made if your strategy or your market is not sustainable. A sustainable strategy must offer real value to a consumer’s life – it must somehow extend or support life. Only when you have a product providing a real, non-superficial value, (which may be transient or age-based), would you have real sustainability in a product, bringing the product life through generations.

For example, it would be a moral decision not to offer mega, oversized-packs of potato chips in order not to encourage consumers to buy or eat more than what they need. While these are great for parties, these chips land up in front and inside of obese people. In Asian markets, where chip-binging is not habitual, parties manage just as well through buying a range and selection of chips. This is where the Japanese strategy would come in useful in addressing the consumer appetite for variety and change. If our customers do not die of cholesterol-related diseases – it does mean that they would continue consuming the product for a much longer period of time.

Investing in developing healthier products and helping the consumer develop healthier buying habits is not necessary a paradox. Both good and bad living habits are passed down through the generations, and through other friends we are influenced by. Bad habits that are detrimental to your quality of life, such as smoking, binging or overleveraging on credit, may either shorten your life or land you in a poverty cycle. Neither of these would benefit FMCG companies. We can't point the finger at the financial industry and say that this mess is all their fault. Who gave the idea to consumers of quick and fast purchases that make them feel good? Who offered unhealthy food or supported unhealthy lifestyles that resulted in unforeseen medical bills that finally pushed bad credit over the edge? We are all part of the same ecosystem and each have a responsibility.

Companies may argue that if they don’t resort to such “overselling”, they would lose out to the competitors. Or even in the idyllic setting where this becomes a strategy in FMCG industries, other industries shaping consumer purchasing patterns may prove such a naïve approach laughable. The fact is that we have collectively created today’s consumer purchasing pattern. It is also a fact that in some cases, single companies or industries have changed the consumer’s mindset (think instant food or McDonald’s). The responsible product behaviour suggested here may go against the tide, but with the appropriate marketing and communications, it is a sustainable and profitable strategy for brands and for their companies.

Diwali and Decision-making

Since I haven’t posted for the past two weeks, I have accumulated some India entries. These would be my last India entries as I am actually back in China. In this post I would like to focus on consumer buying patterns in the rural areas.

As most are familiar, Diwali is the biggest event in the Hindu calendar. Known as the Festival of Lights, it celebrates the triumph of good over evil. Diwali preparations begin months before, with family members booking tickets to go home; wives planning on the food menu and decorations; and men deciding on major purchases and the arsenal of fireworks that accompany the celebration. The pictures in this posting shows the mad shopping on Diwali as well as celebrations at Dussehra, which is marked by Dandiya, a social dance form that features the use of paired lacquered sticks. Dandiya events occur before Diwali, and is itself preceded by nine days of fasting for the devout.

Similar to any other major festivals in the world, families would save up throughout the year to make major purchases during Diwali. In the rural families, this usually means new clothes, candles and flowers for the festivities, crackers, gifts and major purchases (such as electronic equipment). One thing I’ve learnt from visiting towns and villages in India – the men do the important shopping. This is especially the case for villagers where men are the ones travelling into towns to make major purchases. The trading areas in towns are populated with men. It is not socially acceptable for women to be seen by themselves in such an area, unless it is an area of town where the womenfolk go.

Hence, the pattern of purchase would be the men viewing the item at the shop – going back to ask their wives and relatives for opinions – and then taking permission from the eldest person in their family to make the major purchase. If the wives do view or hear of a certain product, she still would tell her husband, and the person making the purchase is invariably the father of the family. Additionally, men speak with other men in the village through daily social settings and word of mouth travels powerfully. Relational communication plays a large part within the village, as well as across to towns and cities.

These basic observations also mean that a different kind of brand building for the world’s other 90% is possible. The good news is, you don’t have to spend anywhere near as much money on above-the-line and you can still get good products to people who benefit from it the most. The bad news is, it’s really time and manpower intensive. But that also means you’re creating more jobs, training more people, connecting across social divides and ultimately, redistributing wealth.